A couple of weeks ago, I discussed the likely extent of the problem of negative equity and homes worth less than when they were bought. This had led to a rich vein of suggested blog posts as extensions, including last week’s look at which counties have suffered most from “unexpected” unemployment since the start of the recession.
That post was a first step towards estimating how many households are faced with both unemployment and negative equity. Today’s post is an intermediate step: how many mortgage-holders are unemployed? How does this vary across counties? And what would it look like if the Live Register were to hit 500,000, as some have suggested it might?
There are about 1.7 million households in the country – almost 600,000 were mortgage-holders in the Census of 2006 and they have been joined by another 90,000 or so first-time buyers since then. (Landlords and buy-to-let investors are of course another issue, but I’ll leave them out for the moment.) At the same time, since the Census, the number on the Live Register has increased from 155,000 to 385,000, meaning there are about 230,000 “unexpected unemployed” around the country, many of whom would have bought property at some point over the last decade or two assuming a stable employment situation.
Working out how many of those two groups intersect is not a precise science. Given the broad nature of the economic downturn in Ireland, I have assumed that unemployment has been indiscriminate across working households, i.e. of the 230,000 new unemployed, 55% are in homes with a mortgage, the same ratio in the broader labour force. The map below gives the approximate percentage of households with a mortgage where one person has become unemployed since the recession started. The national average is about 7% of households with a mortgage (or one in fifteen) are currently faced with unemployment.
It might be useful to walk through one county to explain in more detail. In Louth, where there are 44,000 households, about 14,000 of them are more than likely households with retired (and mortgage-free) inhabitants. Of the remaining 30,000 households, just under 20,000 are owner-occupiers with mortgages. At the same time, almost 9,000 people have been added to the number of unemployed people in Louth in the last two years. Assuming that the spread of unemployment was not related to home ownership status, that would mean that 60% of the new unemployed – or just over 5,000 people – are mortgage-holders. If those figures are at least in the right ballpark, that means that one in eight households with a mortgage in Louth is dealing with unemployment.
If you go to the original Manyeyes visualization, you can also look at the 2010 scenario of 500,000 on the Live Register, which assumes that the future increase in unemployment is distributed the same way the increase in the last 24 months has been. Because of that assumption, the regional dynamics don’t change – Leinster is still clearly worst affected – but the national headline naturally worsens. In that scenario, 10% of mortgage-holders would be faced with the problem of unemployment.
The final piece of the puzzle – next week’s post – is estimating how many of those who are unexpectedly unemployed and who have a mortgage are faced with the loan on their property being greater than that property’s current value.
Ronan, this looks like a great analysis.
I’m going to hazard a guess that Louth sticks out mainly because of people deserting Dundalk and Drogheda to shop north of the border.
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Is ‘unemployed’ defined as thoe signing on, in your figures, or does it take account of those in employment but in receipt of some state benefits? Is it possible to isolate the two?
How are the self-employed (or not for much longer) with mortgages treated for the purpose of the exercise?
Unfortunately for this exercise, I had to use the most timely data I could find, i.e. Live Register. Hopefully, though, by focusing on the increase rather than the absolute, it’s capturing the bulk of those ‘caught off-guard’. If anyone knows of a way to separate as Gerard suggests, please do leave a comment.
On the self-employed, that is another good point. I’ll have a think, but I fear that may be even more difficult to estimate.
John Hill ,
Ronan, great blog.
Where do you get the time?!
It would help if we knew anything about the composition of mortgaged households (socio-economic status by number of earners, for example). You could then apply changes in the incidence of unemployment by occupation to estimate the exposure of those mortgaged households to job losses. A fly in the ointment at the moment is the heterogeneous nature of the Live Register. Conceivably at least some of its rise may be attributed to dual-earners with either (or both) partner on short-time — particularly so for female second earners. Without knowing the underlying composition of increases in the Live Register your inference of unemployment will be biased upwards as will your estimate of mortgaged households facing unemployment.
At the very least we’ll need to wait for the next QNHS unemployment tables (July/August for 2009Q1 I believe).
Perhaps CSO will consider a re-run of their 2003Q3 housing module to answer some of these questions for us?!
Excellent comment, I’m hoping someone (Gerard from Amarach maybe?!) has survey data on how many households have two earners, etc.
That would at least give us the bounds, because as you can see from post, I’ve had to be very circumspect and write things like ‘affected by/facing the problem of unemployment’ because as of yet (one of the evidence points that time is indeed finite!) I’m clueless apart from anecdotal evidence about the issue you raise.
A further complication would be not knowing how many ‘double unemployed’ households there are – 230,000 extra unemployed may only translate into 180,000, 50,000 of which are affected twice. I think it may be time for a petition to the CSO!
In reality, I doubt if it matters over much. Given the profile of the homeowners and their need for two incomes to service the mortgage. For your purpose they may as well be seen as one.
Brian Woods ,
The issue of neg. equ. is really a political matter. The legislators (all of them) need to consider legislation that will allow persons with mortgages on their primary residence (home) to write off the entire, or part. The economic model (Permagrowth) that most assumed would provide a continuing, and increasing, income stream is finished. Hence the ability of those unfortunate people, caught in neg. eq., to repay their mortgage is zero! Repossession will only result in another homless family and a vacant property to be vandalized. If some of those in neg.eq. form the opinion that they are being ‘evicted’ – watch out!! Things will go from bad to ugly to dangerous. We need a Debt Jubilee – however it can be arranged. I would suggest to your readers that they consult, Bunreacth Na hEireann (Art. 43.2.2). This economic downturn is here to stay for a very long time.
Does Ireland have a mortgage interest relief scheme, like the UK:
Could get veeery expensive for taxpayers!
Thanks for visiting and for the comment. Ireland’s currently wondering what to do with its mortgage interest relief system at the moment (explained here: http://www.revenue.ie/en/tax/it/leaflets/tax-relief-source-mortgage-interest-relief.html). It is indeed massive tax revenue foregone. When pieced together with the potential for negative equity and the absence of a property tax in Ireland, it’s certainly some hole we’ve got ourselves into.
Thanks for the comment. Do you think moral hazard is a threat, i.e. that by a Debt Jubilee, we fail to learn the lessons that we need to learn from this episode? Or do you think that things are so bad, that even with a blanket debt amnesty, we’ll still remember that houses are for life, not just for ladders?
Negative equity, the property market and unemployment in Ireland | Ronan Lyons ,
[…] other issue – income security – is even more serious. Unemployment has doubled in every county in the country and in fact trebled in the last two years in some counties, s…. Nearly 400,000 people are unemployed at the moment, and some of these have to be people who bought […]
marie halligan ,
i would like to put my name to the petion against property tax in ireland. irish people are sacrificing enough as it is. a property tax on top of everything else will just put too many more people on or below the poverty line. after all its not as if we can sell our houses any more is it? or does the government want us all to sell our homes for a pittance to n.a.m.a? just a thought!
unemployment and negative equity is a big problem. Over the years, the home buying process has been simplified for everyone. I think thats also one of the problems.
I agree it is absolutely shocking the poor folk suffering and the unemployment that the crunch has caused, we need some answers.
Nashville Homes ,
We have similiar issues across the pond and unfortunately because of the little or in many cases negative equity many homeowners are opting to walk away from their properties thus causing a loss of equity for everyone else.
My husband and I are both unemployed and are mortgaged, would it be better to sell and go into rented accomadation?